What should I do? My portfolio is tanking?
When the COVID-19 pandemic began in 2020, it not only locked down populations but also sent global financial markets into a nosedive. Portfolios that were only weeks or months old turned negative within days. The red percentages grew larger. Market ETFs experienced periods of volatility. I had never seen anything like it. Panic set in. Some sold their ETFs, which they intended to hold for decades.
During that time, I received numerous panicked messages from people asking what they should do. They were terrified about their money; they asked me whether they should sell or just ride out the phase (I can't give a one-size-fits-all answer). Or they wondered how long the initial shock in the markets might last (I'm no fortune teller). Their behavior was increasingly marked by fear and irrationality.
After a few weeks, it gradually became clear to everyone that Corona wasn't going to disappear as quickly as it had appeared. It was here to stay. Even as the situation in the markets began to stabilize, the shock remained, and we realized that the market could also plummet quickly. It wasn't always going to rise, and fundamental crises can happen anytime, unannounced.
While passive investing had been considered safe and simple, it was put to the test during the crisis. The order and security of these market participants were shaken.
This is not surprising. In recent years, investing in ETFs and passive funds has become increasingly popular. There are numerous influencers talking about the simplicity and security of passive investing. At the same time, they make money by referring customers to brokers and ETF providers.
The notion that good money could be safely made without much knowledge or effort was over for the time being.
This borders on irony, as active trading was previously considered risky and speculative. It was what most people found off-putting about the stock market. The notion of high risk and big losses. But the crisis showed that active trading has its advantages when mastered. It is flexible and can respond to any market situation. It can profit from falling prices and is not reliant on rising prices.
I myself had very successful months during this phase, as I had a clear strategy and plan for what to do.
If the supposed advantage of passive investing lies in risk minimization, then these events have clarified that this is not the case. Risk management is essential here as well.
In active trading, it doesn't matter to me whether the market is falling or if we are in a deep crisis. When the market falls, I use this movement, bet on these falling prices, and even profit from them. This flexibility (being able to profit from rising and falling markets) coupled with a functioning and applicable risk management, makes trading the unbeatable path to long-term wealth building.